China and Copper - Higher Highs for the Red Metal on the Horizon

In May 2024, COMEX copper futures reached another milestone when the price rose to nearly $5.20 per pound.

The long-term chart shows that copper has been in a bullish trend since 2001 when the price reached a bottom of 60.40 cents per pound.

Market participants have called copper, Dr. Copper for decades, as it is the metal critical for infrastructure building. Copper’s price path is a barometer of global growth or contraction, meaning its price diagnoses the health and well-being of the state of the worldwide economy. Growth in China over the past decades has made copper a bellwether commodity for the world’s second-leading economy. China consumes more than half the world’s refined copper supplies annually.

Copper’s ascent to the May 2024 high at over $5 per ton occurred because of copper’s rising role as an energy commodity in EVs, wind turbines, and other green energy initiatives. Goldman Sachs analysts have called copper “the new oil.”

While the red metal rose to a new record high earlier this year, the price ran out of upside steam because of Chinese economic weakness. Copper briefly eclipsed $4 per pound on the downside before recovering. As copper consolidates, the potential for even higher highs is rising.

Copper’s bull market is over two decades old

• Copper’s bullish trend of higher lows and higher highs began in 2001 at 60.40 cents per pound.
• Before 2005, copper’s record peak was $1.6475 per pound.
• Copper reached its latest record high at $5.1990 in May 2024.
• A correction briefly took copper below $4 in August 2024, but the price recovered. 

The reasons for higher highs in copper

• Copper is a critical ingredient in new green technologies, including EVs and wind turbines, leading Goldman Sachs to call the red nonferrous metal “the new oil.”
• Copper remains a crucial ingredient for infrastructure building and rebuilding.
• Annual copper supplies have been slowly rising.

• Annual copper demand has been rising, creating a supply-demand deficit.

• New mine supplies take years to come online, increasing the deficit projection over the coming years. BHP, a leading international mining company, projects that the demand for copper will rise by one million tons per year, reaching 50 million tons by 2050.
• Supplies will struggle to keep pace with the increasing demand, putting upward pressure on prices.

China is a critical factor

• China’s economy has struggled over the past years.
• China consumes over half the world’s refined copper output
• In late September 2024, the Chinese government announced economic initiatives to stimulate the economy, including lower interest rates and reduced bank reserve requirements.
• Chinese economic growth will likely increase China’s copper demand.

Levels to watch in the copper market

• Technical support is at the August 2024 $3.9210 low. Below there, the critical level for the long-term bull market is at the July 2022 $3.1355 low.
• Technical resistance is at the May 2024 $5.1990 high.
• Copper’s bullish trend remains firmly intact in early November 2024. 

ETFs and stocks that will track the red nonferrous metal

• The most direct routes for a risk position in copper are the futures and futures options on the CME’s COMEX division or the LME forwards and forward options.
• The U.S. Copper ETF (CPER) tracks copper futures prices.
• The Invesco DB Base Metals Fund holds a basket of nonferrous metals, including copper, aluminum, and zinc, the most liquid LME metals. Aluminum and zinc prices tend to follow copper.
• The world’s leading copper-producing companies are BHP (BHP), Freeport McMoRan (FCX), Rio Tinto (RIO), Glencore (GLNCY), Southern Copper (SCCO), and Vale (VALE). These companies’ shares tend to follow copper prices higher or lower.

Copper is more than the leading base metal, as its price is a barometer of the health and well-being of the global economy. Meanwhile, addressing climate change with green technologies requires increasing copper production, and output will struggle to keep pace with the growing demand. Copper’s bull market remains firmly intact in late 2024, and the trend in any market is always your best friend. Given the fundamental and technical factors, copper is likely heading for new all-time highs over the coming years. A Chinese economic recovery could turbocharge the copper market’s ascent.

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!